Soil, air, water: developments and opportunities

Natural capital: the backdrop

11 March 2019

This feature offers a brief overview of developments and opportunities for the profession

Natural capital has become prominent both globally and nationally in recent years. It has been defined by the Natural Capital Protocol as the ‘world’s stocks of natural assets[,] which include geology, soil, air, water and all living things’, and from these derive a wide range of ecosystem services that make human life possible. Ecosystem services have been defined as ‘the benefits people obtain from ecosystems’, and are classified under 4 headings, as detailed in the box below.

Classifying ecosystem services

Supporting services: the services necessary for all others, including soil, photosynthesis, biomass, nutrients and water.

Regulating services: the benefits from regulation of processes including regulation of air quality, climate, water, erosion, poaching and natural hazards.

Cultural services: the non-material benefits people obtain from ecosystems through spiritual enrichment, recreation and aesthetic experiences, taking account of landscape values, use and non-use benefits to buyers and users.

Much of the recent focus on natural capital has related to the identification, recognition and valuing of the supporting, regulating and cultural services, given that better recognised services, such as food and fuel, fall under provisioning.

Natural capital has been the focus of the Economics of Ecosystems and Biodiversity, a global initiative whose principal objective is to bring the values of biodiversity and ecosystem services into decision-making at all levels across all sectors. But there have been a plethora of other global initiatives concerned with natural capital.

In the UK, the most significant work is the UK National Ecosystem Assessment (NEA), which published its first report in 2011. This was the first analysis of the country’s natural environment in terms of benefits to society and continuing economic prosperity. The assessment contained 6 key messages, detailed in the box below.

UK NEA: key findings

The natural world, its biodiversity and its constituent ecosystems are critically important to our well-being and economic prosperity, but are consistently undervalued in conventional economic analyses and decision-making.

Ecosystems and ecosystem services, and the ways people benefit from them, have altered markedly in the past 60 years as a result of changes in society.

The UK’s ecosystem services currently provide some services effectively, but others are in long-term decline. Out of a total range of services, around 30% are declining.

The UK population will continue to grow and its demands and expectations will continue to evolve. This is likely to increase pressure on ecosystem services in the future, and climate change will have an exponential impact.

Actions and decisions taken now will have consequences far into the future. It is important that these are understood so we can make the best possible choices, not just for society now but also for future generations.

A move to sustainable development will require a mixture of regulations, technology, financial investment and education, as well as changes in individual and societal behaviour and adoption of a more integrated, rather than conventionally sectoral, approach to ecosystem management.

UK policy

The NEA’s stark messages on our natural capital and ecosystem services spurred respective UK governments into action with the evolution of policies to ensure a natural capital approach is embedded in the land sector, especially given our imminent withdrawal from the EU and Common Agricultural Policy at the time of writing. While some policy developments for England are outlined in some detail, similar policy developments are taking place throughout the UK.

The UK NEA also prompted the formation of the Natural Capital Committee in 2012, an independent body that advises government on the sustainable use of England’s natural capital. Environment secretary Michael Gove asked the committee to advise on the government’s 25-year plan. Published in January 2018, this sets out the government’s goals for improving the environment in England over the next generation, and how the government will work with communities and businesses to achieve this.

The plan was followed by a consultation that started to outline government’s thinking on the future of agricultural subsidies and land management support. The key theme of this document was the proposed move to a system of public money for public goods.

September 2018 saw government publish the Agriculture Bill, which enshrined the policy objectives of this consultation. The bill details plans to phase out direct payments under the Common Agricultural Policy and move towards a framework that will see farmers and land managers being paid to provide public goods. The aim is to ensure they are empowered to maintain their role as custodians of the countryside, while also producing the highest-quality food, timber and biodiversity.

The bill also allows ministers to make payments during the transition period, up to 2020, to improve farming productivity. ‘This could include supporting investment in technologies and methods that can help farmers reduce the use of inputs such as fertilisers and pesticides, while maintaining or increasing production,’ it says. Such support could be in the form of grants, loans, loan guarantees or capital allowances.

Natural capital has been the guiding principle throughout the drafting of the bill. Having a sound understanding of this principle will be essential if farmers and land managers are to generate and maintain future income streams. Collaboration will also be key; stakeholders will need to work together and, in many instances, new partnerships need to be forged.

The government is proposing that future funding will be directed through an environmental land management scheme (ELMS) with the expectation that the greatest payments will be directed towards those providing the most environmental benefits. One pilot by the Department for Environment, Food & Rural Affairs is currently running in Wensleydale, North Yorkshire, and is rewarding farmers according to measurable environmental outcomes. Initial reports indicate that those in the scheme are enthusiastic about the payment by results approach because they can use their skill and judgment to achieve the desired outcomes.

For instance, senior farm conservation officer at the Yorkshire Dales National Park Authority Helen Keep says: ‘One of the most surprising and pleasing aspects of the pilot is that it has helped to engender a healthy competitiveness among the farmers to do more for the environment.’

Key stakeholders in the land sector have also focused on harnessing natural capital opportunities. In September 2016, think tank Green Alliance and the National Trust issued a proposal for a natural infrastructure scheme to show how new markets could help support farming methods that reduce flooding, provide clean water and restore wildlife, to the benefit of all.

The National Trust highlights that flooding and water pollution are estimated to cost at least £2.4bn a year to businesses, infrastructure operators and government agencies in England, and believes diverting even a small proportion of this towards land management changes on farmland that reduce flood risk and pollution would represent a significant addition to funding for environmental restoration.

The trust also foresees that new natural capital delivery companies could see groups of farmers working together with businesses to ensure flood protection and clean water. The Country Land and Business Association (CLA) has also developed and continues to promote a form of land management contract through which farmers and landowners would be paid to provide ecosystem services with defined measures and outcomes based on scientific evidence and societal needs.

Mindful of the developments in natural capital and ecosystem services, and seeing the need for the profession to engage, RICS commissioned the first of 2 papers on the subject from Charles Cowap, Challenges for international professional practice: From market value to natural value, published in 2012 (available from Fiona Mannix, fmannix@rics.org).

This highlighted how new approaches to the valuation, appraisal and management of natural capital and ecosystem services promised to transform the way land is managed, development is carried out, assets are appraised and valued, and goods and services once taken for granted are paid for.

The paper predicted that developments in the ecosystem services arena would have far-reaching implications for the work of chartered surveyors in valuation, estate and property management, construction, property development and environmental services. These predictions are coming true.

Value of natural capital: The need for chartered surveyors, the second paper, developed RICS’ thinking on ecosystem services. This reviewed the broad topic of environmental valuation from the perspective of a practising valuer, land manager or estate manager and approached the field of economic valuation of the environment from a professional valuation perspective.

It presents the language and approaches of environmental valuation in such a way as to enable parallels to be drawn with the technical procedures familiar to professional valuers when dealing with the conventional property assets in established market contexts. Care is of course required to ensure that clients fully understand the nature of the advice being provided, and that there may – and usually will – be wide divergence between figures provided on these fundamentally different bases.

While the paper outlined examples of grasslands and woodlands, the approaches involved can be applied to a range of natural assets. However, it’s important to note the distinction between the value of an asset as it stands for sale or notional sale, and the evaluation of the deemed or perceived benefits or disadvantages associated with an asset’s existence, enjoyment, environmental or aesthetic contribution for strategic decision-making purposes. Although it may be possible to translate the benefits of some assets into part of a sale or notional sale, it will not with others.

Actions for professionals

In the first instance, chartered surveyors and land managers need to support landowners to identify, map and document natural capital assets. Consideration is then needed to assess and appraise these assets and the products and services they provide so professionals work with both private and public partners and develop market opportunities based on such benefits as:

woodlands actively sequestering carbon;

grasslands and wetlands reducing flood risk and improving water quality;

access to the natural environment enhancing our health and well-being; and

There will be key roles for chartered surveyors in advising land managers to identify opportunities, instigate collaboration, bring key parties together, develop markets and put a range of new agreements in place to help realise some of the natural capital values and ensure that land continues to provide vital services across all 3 pillars of sustainability: economic, social and environmental.

John Lockhart FRICS CEnv is chair of Lockhart Garratt environmental planning and forestry consultancy, specialising in areas including strategic woodland management, environmental planning and development and green infrastructure. Fiona Mannix ACMA is associate director of RICS Land Group and has led the development of RICS’ work in natural capital